Ladies and gentlemen, good day, and welcome to the AU Small Finance Bank Q4 FY 2026 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Prince Tiwari, Head of Investor Relations. Thank you, and over to you, sir.
Thank you, Sagar, and good evening, everyone, and warm welcome to AU Small Finance Bank's earnings call for the fourth quarter of financial year 2025-2026. We thank you all for joining us this evening. On today's call from the management, we have our Founder, MD, and CEO, Mr. Sanjay Agarwal, Deputy CEO, Mr. Uttam Tibrewal, Executive Director and Chief Credit Officer, Mr. Vivek Tripathi, our COO, Mr. Yogesh Jain, CIO, Mr. Ankur Tripathi, and our newly appointed CFO, Mr. Gaurav Jain, and the IR team. As we made the announcement today, Mr. Gaurav Jain has been appointed as the CFO of the bank, and I take this opportunity to congratulate Gaurav on his appointment. We'll start today's call with a 15-20-minute opening remarks from Gaurav, highlighting the bank's performance, positioning, and outlook.
We'll then follow it up with an open Q&A of 40-45 minutes from the participating analysts and investors. For the benefit of all participants, and so that we can take everyone's question, we would humbly request everyone to keep the number of questions restricted to two per participant and join back in the queue in case you have any further questions. With that, I now request Gaurav to kindly take us through his opening remarks.
Thank you, Prince. Good evening, everyone, and thank you for joining the call. It's a pleasure to welcome you all to our earnings call for the fourth quarter of FY 2026. On 19 April, we completed 9 years of our banking journey, and I would like to take this opportunity to thank all of our stakeholders for their continued trust and support.
As we enter the decadal year of our operations, we continue to focus on our core philosophy of sustainable growth and achieve our long-term objective of building a forever bank. Coming to the operational highlights for the quarter, let me start with the operating environment. Geopolitical tensions in West Asia continue to weigh on global energy prices, currency markets, and supply chains, elevating overall risk sentiment. Indian macroeconomic environment, while relatively on a better footing, did see volatility across currency yields and business sentiment towards the latter half of March. As a retail-focused bank, we have no meaningful exposure to borrowers directly impacted by trade or supply chain disruptions. However, we remain watchful of the second-order effects, particularly fuel prices pass-through into inflation, consumption, and credit. Amidst this environment, we delivered a strong quarterly performance, helping us to finish the year on a high note.
Deposits growth remained strong at 10% quarter-on-quarter and 23% YoY versus estimated private sector banking growth of 13%. Loan portfolio grew by 8% QoQ and 21% YoY versus estimated private sector banking growth of 13%. Secured assets grew by 7% quarter-on-quarter and 23% year-on-year. Unsecured businesses also turned around with a 7% quarter-on-quarter growth led by MFI and personal loans. On a YoY basis, unsecured portfolio declined by 1%. Margins expanded by 24 basis points quarter-on-quarter to 5.96%, led by a decline of 12 basis points in cost of funds, 6 basis points benefit from lower gross slippages and higher NPA resolution, and around 7 basis points seasonal benefit from lower day count in February.
Cost to assets ratio continues to improve despite ongoing investments in manpower, distribution, branding, and technology. Excluding CGFMU premium, cost to assets ratio for full year declined by 19 basis points to 4.1% from 4.3% in FY 2025. Including CGFMU premium, cost to assets ratio was lower by 16 basis points to 4.2%. Asset quality saw continued improvement led by normalization in unsecured portfolio and seasonal and non-seasonal improvement in secured assets. Slippages declined by 17% quarter-on-quarter to INR 659 crore, leading to GNPA ratio declining by 27 basis points to 2.03%. Credit costs for Q4 declined to 0.6%, whereas credit costs for full year came at 96 basis points of average assets. Credit cost inclusive of CGFMU premium was around 1% of average assets for the full year.
Profit for the quarter grew by 25% quarter-on-quarter and 65% year-on-year to INR 832 crore, with ROA improving to 1.8% for the quarter. Profit after tax for the full year grew by 25% to INR 2,641 crore, with ROA improving to 1.6% and ROE at 14.2%. Now, let me briefly update you on some of our strategic initiatives. First, on the universal banking license. Pursuant to the bank's request, the RBI has amended the NOFHC requirement, which will now apply to the transitioned universal bank only if the bank or its promoter group proposes to establish any group entity in the future. Following this amendment, we filed the final license application in March 26 and await regulatory approvals. Second, on the succession planning.
The board and executive management continue to invest in increasing the leadership depth, and we had made certain announcements during last quarter in this regard. To further update, RBI has approved the extension of our MD and CEO, Sanjay Agarwal's, tenure for three years till April 2029. Our Deputy CEO, Uttam Tibrewal, completed his term as full-time Director in April. He will continue in his capacity as Deputy CEO, leading the bank's retail business vertical and increase his focus on on-ground engagement to drive growth, strengthen customer relationships, and expand the bank's presence across newer geographies. Our Chief Credit Officer, Mr. Vivek Tripathi, has assumed the role of Executive Director for a term of three years following RBI approval. Third, on operating efficiency. There is a great degree of focus on driving operating efficiency over the medium term through multiple structural interventions.
One of the key levers is agentic AI, which provides an opportunity for us to completely reimagine our customer and employee-facing journeys, and we are systematically integrating agentic AI capabilities into our core operations to make it exciting and easier for our customers to bank with us and faster for us to service them. We are also realigning our organizational structure by consolidating businesses, eliminating parallel hierarchies, and reducing redundancy. For example, agri business is now merged with business banking, and home loans and NBL businesses have started sharing back-end teams. We are also working to flatten our sales hierarchy, expand managerial span of control enabled by real-time data visibility. While driving these interventions, we continue to invest in scaling our franchise by adding to the sales team, expanding our distribution, and investing in our brand. Fourth, on our tech initiatives.
We are embedding AI decisively into our core operating model. This is not an incremental adoption. It requires us to fundamentally reimagine how we operate, scale, and serve our customers by delivering superior customer experience, higher productivity, and scalable growth without proportional increase in cost or headcount. Our tech roadmap focuses on adopting an enterprise-wide agentic AI platform, developing AI use cases on our data platform, driving process automation, and lastly, keeping our core architecture modern. First, on the agentic AI platform. We have implemented a deterministic, rule-driven agentic AI platform built for high speed, personalized customer engagement with full end-to-end traceability and auditability. By removing the friction of fixed digital workflows, this platform empowers our team to serve our customers' needs more effectively and expand product reach at lower cost.
Our first AI native loan origination system built on this platform went live last week for our gold loan business. We're now actively expanding this agentic platform to mortgages, commercial banking, wheels, personal loan, and credit card LOS journeys. In parallel, we are building a model-agnostic multilingual platform for customer service, enabling deeper customer understanding, end-to-end lead management, and enhanced cross-sale efficiency. To sustain and scale this transformation, we are establishing a center of excellence, bringing together internal talent, global partners, and cutting-edge capabilities to identify and implement AI use cases across the bank. Second key initiative on the tech side is around data engineering and AI-based analytics use cases. The bank has built a unified data platform wherein most MIS and dashboards have migrated to this automated platform, and our internal meetings are increasingly being conducted leveraging this platform, improving timelines and decision-making.
Building on this foundation, we are deploying AI and ML across credit underwriting, fraud decisioning, collections, and customer service. Multiple credit underwriting scorecards for new to bank and existing to bank customers are live for credit cards and personal loans, enabling rapid decisioning. Scorecards for personal cars, taxi, small CV, and vehicle refinance are under development. On AML monitoring, approximately 60% of alerts are reviewed and resolved through AI-based models, with the majority identified as false positives within acceptable risk thresholds. Beyond dashboards and analytical models, a customer 360 view and customer-level profitability model covering both retail and commercial customers has been built to facilitate cross-sell and faster decisioning. Now we are adding AI layer on top of this data platform, which can be used for querying any business KPI dynamically by just writing prompts in plain English.
Our AI-driven collections bot is live, improving engagement and resolution speed. On customer service, inbound calling was launched as the bank's first AI initiative across multiple languages. Outbound AI-led campaigns are underway across businesses with a target to scale up to 25% of total calls over the next two quarters. The third area of focus is technology transformation and automation. On the customer-facing side, our AU 0101 retail app has been revamped with a more intuitive, customizable interface. Our website has also been refreshed this quarter. On the asset side, our wheels business runs entirely on Salesforce LOS. Personal loans are now live on the same platform, and credit cards will follow shortly. On liabilities, our branch banking account opening journeys are now fully STP with cross-sell embedded natively within onboarding process.
On HR, we have migrated to Darwinbox for consolidating our HRMS employee helpdesk and internal communications on a single platform. Across back-office functions, we are migrating to a workflow-based operating model with over 10 workflows being built across audit, risk, IT, compliance and secretarial functions, minimizing email dependency and strengthening audit trail. Lastly, to update on our core architecture, migration of Fincare's core banking system was completed in April. With this, the integration of Fincare into AU is complete. Now let me give some color on each of our businesses. Our deposit base now stands at INR 1.52 lakh crore, growing by 10% quarter-over-quarter and 23% YoY. CASA deposits grew by 9% quarter-over-quarter and 20% year-over-year, with CASA ratio broadly stable at 28%.
Our deposit strategy is anchored on three pillars, granularity, stability and cost of funds. On granularity, we continue to grow our branch banking deposit book, which constitutes around 60% of the overall deposits. New CASA account acquisition for FY 2026 grew by 62% year-on-year, crossing the milestone of 1 lakh monthly acquisitions in December, a run rate which we have since maintained. Strengthening and scaling our deposit franchise remains one of our top focus areas. We are opening 80-100 newer branches every year, investing in our brand and expect significant benefits to accrue over time from the anticipated transition to universal banking license. On stability, our focus within wholesale deposits has been on non-callable deposits in order to strengthen our resilience. Total stable deposits, which includes CASA, retail and non-callable wholesale term deposits, was stable at 79%.
On cost of funds, we saw meaningful improvement. Full year cost of funds declined by 32 basis points year-on-year to 6.75% versus 7.07% in FY 2025. Q4 cost of funds was at 6.49%, down by 12 basis points during the quarter. Our average LTR for the quarter was stable at 119% versus 118% last quarter. Also, the bank carried 15% additional liquidity in the form of non-LTR investments. Now moving on to our assets franchise. Retail secured assets, which includes wheels, mortgages and gold loan, formed 66% of our portfolio and grew robustly at 21% year-on-year. Within retail, our wheels book grew by 27% year-on-year to reach approximately INR 46,400 crore, driven by improving affordability across segments.
Gold loan business has doubled this year from a low base to reach approximately INR 4,000 crore. Our mortgages business, comprising micro business loan and affordable housing, grew by 11% year-on-year to approximately INR 42,400 crore in a highly competitive market warranting disciplined pricing and underwriting. Increasing growth rate in this business remains a key focus area and we're working to increase our productivity in newer geographies like Andhra, Karnataka, Telangana, Tamil Nadu and UP. It's important to note that in the last two years we have nearly doubled our retail asset distribution to about 900-1,000 branches for each of our retail secured businesses. This expanded distribution is expected to support growth over the next few years. Moving on to commercial banking.
Commercial banking forms 22% of our lending business and grew by 29% year-on-year and 12% quarter-on-quarter to reach around INR 31,000 crores with an additional loan fund base book of approximately INR 11,000 crores. We have carved out renewable energy as a dedicated segment within commercial banking, reflecting opportunity in this space. A strategic priority for commercial banking is self-sufficiency on funding. Currently, commercial banking sources approximately 56% of their funding requirements. Combined with transaction banking and CMS, our intent is to progressively run this as a fully self-funded business, a model that strengthens both margin resilience and customer stickiness. Now moving on to unsecured businesses. Our inclusive banking franchise, which primarily includes MFI, saw a strong sequential growth of 8%.
Non-overdue collection efficiency in MFI has normalized to 99.7% for the current quarter, compared to 99.3% for the previous quarter. 92% of the MFI book is now covered under the CGFMU guarantee scheme. Our digital unsecured portfolio, comprising credit cards and personal loans, grew by 4% quarter-on-quarter. Personal loans portfolio witnessed a resumption in growth this quarter with a healthy 19% sequential increase from a low base. Credit card business broadly stabilized this quarter after nearly five quarters of degrowth and should start seeing gradual growth going forward. Moving on to P&L. Our profit after tax for Q4 grew by 25% quarter-on-quarter and 65% year-on-year to INR 832 crore with ROA of 1.8%.
For the full year, profit after tax increased by 25% year-on-year to INR 2,641 crore with ROA of 1.6%. Net interest income increased by 10% quarter-on-quarter on the back of strong growth in loan portfolio, lower cost of funds, and seasonally strong margins in the quarter. Full year NII growth was at 14%. Core other income saw 7% quarter-on-quarter growth, driven by higher business volumes. Full year core other income growth was at 13%. Operating expenses for Q4 increased by 6% quarter-on-quarter, primarily reflecting higher business volumes. Provisions were down 19% quarter-on-quarter on account of normalization in unsecured businesses and seasonal recovery in secured assets. Full year provisions were also down 10%.
The Board of Directors has recommended a dividend of INR 1 per share for FY 2026, subject to requisite approvals. To conclude, FY 2026 has been a year of disciplined, consistent execution, true to our long-term vision of building a forever bank. Our priorities remain unchanged. Growing our core asset franchises, scaling liabilities franchise, and driving structural efficiency through AI and technology. We enter the next phase as a stronger, more diversified and more efficient institution with products, technology, distribution, and people all firmly in place. We are inducting AI in our core operating model, which can lead to a complete reimagination of our customer journeys and provide a sustainable operating leverage over the coming years. We believe our franchise is capable of sustainably compounding at 2x-2.5x of India's nominal GDP growth rate, delivering consistent, predictable and long-term value to our shareholders.
I thank our teams for their dedication and all our stakeholders for their continued trust. With that, I will now hand over to Prince for Q&A.
Thanks, Gaurav. Sagar, we can open the call for Q&A.
Perfect. Thank you. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on the touch-tone phone. If you wish to remove yourself from the question queue, you may press star and then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Again, to register for a question, please press star and then one. Our first question comes from the line of Renish from ICICI. Please go ahead.
Hi, sir. Congratulations set of numbers. Just two things. One, on this contingency provision creation of, what, INR 21 crore during Q4. So you have mentioned that, we have built this towards some specific accounts. Can you share some more details, around these accounts, like, you know, it pertains to, which segment, we have seen real estate, commercial banking? Or, maybe what is the aggregate exposure at bank level? That's my first question.
Renish, Vivek here.
Yeah.
These are normal, you know, these are not some high-value specific cases. These are normal business banking working capital cases. We assess the risk, you know, assuming that, the risk assessment, whether what amount is covered through our security and other thing, through recommendation and is provided. There is nothing specific to it, right?
Okay. Because in PPT.
Just basically.
You mentioned that.
Just this is the internal risk assessment.
Okay.
Yeah.
Okay. I mean, there will be like number of accounts, not maybe two, three accounts in total.
Yeah, yeah.
Okay.
Standard account. This is the risk assessment. We just provide the additional provision, that's it.
Got it. My second question is on the, you know, the action behind hiking interest rate in savings account and TD way ahead of the industry. Are we experiencing some challenges in raising incremental deposits or it is that we anticipate some better growth going ahead and to maintain CD ratio, maybe we are hiking rates to remain competitive?
Yeah, Renish. Hi. Sanjay Agarwal. So, you know.
Hi, sir.
In terms of liability, you know, we are not focusing on one data point or, you know, one way of building it up, right? It is a combination of 3-4 variables like, you know, one is how much you want to raise the cost of money, you know, how you want to play your CASA, how you want to play your retail versus wholesale, you know, the overall CD ratio.
Mm-hmm.
If you see our whole last year performance, you know, our CASA remains stable. It is around 28%-29%. Our stable money is around 80%. Our cost of money, you know.
Mm-hmm.
We were anticipating, you know, maybe a drop of only 15-20 basis points, but in, we actually drop it by around twenty-
32%.
22%.
32%.
32 %. 32 basis points, right? Our ALM is perfect match, you know. If you ask me, I think we want to play it like this only this year too, you know, and it's in every month working, you know. You can't predict, you know, you can't have a specific one rule for entire year, right? There's ALCO at every end, you know, and there's a two-month-
Got it.
RBI monetary. We need to play with the environment, but focus will remain on 2-3 things. 1, we want to build a very stable liability franchise. The focus of bank is entirely on that.
Be it, uh-
Okay.
You know, the quantity, the quality, you know, and I'm very happy that being an SFB, you know, we don't have a right to win so much. Still the
Still the team is doing phenomenally good job, you know. They are building it, quality, quantity, overall cost of money, you know. We are not playing a perfect game, right? We need to build it somehow, somewhere, right? I think.
Got it. Got it.
I would say that our nine-year-old journey has taught us that liability is a day-to-day business, right? We need to play every day.
Got it. Okay. There is no, let us say, a structural trend, you know, based on this. It is maybe.
Nothing for us.
No, no, Renish. I believe we need to play it every day. We need to build it every day.
Got it.
The more deeper we are going into a banking franchise, more stable.
Mm-hmm.
More predictable we are now.
Got it. Okay. That's it, sir. Thank you and best of luck, sir.
Yeah. Thank you.
Thank you. Your next question comes from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Thanks, and congratulations for good set of numbers. Firstly, with respect to ROA, we are almost at 1.8% now on exit level. What would be the focus? Maybe would we still try to drive it up further or sustenance of that will be critical? What would be the levers available to drive it? No doubt there would be some levers on OpEx, but would it get offset by the other measures, and we will just try to sustain it at 1.8%?
Kunal, obviously, you know, we know that Q4 is always seasonally strong, right? That 1.8% also, you know, reflects that strong seasonality. You know, our goal would be to maintain this ROA or achieve this ROA on a full year basis for next year. You know, the levers on that, clearly, you know, as we mentioned earlier as well, we're doing a lot of work on our operating efficiency, so we should see continued improvements year on year on the OpEx to assets ratio. That's one. Second is, you know, we are coming out of somewhat of a
Any targeted levels?
Sorry?
Any targeted levels?
No, no. There's no target. I'm just giving you know, directionally what we are working on. It's difficult to guide you on a line-by-line basis on the ROA three. Second is on the credit cost front, right? As you know, we are coming out of somewhat of a you know, crisis in MFI, and the credit cost has normalized. Similarly in the credit card business as well, the credit cost is normalizing. We expect on a full year basis next year, these two things in particular to drive our cost credit cost lower than the full year in the current year, right? I think these are the two levers to watch out for next year, and we will see how we perform against these two.
Sure. On margins, you indicated some breakdown with respect to what you mentioned, say 6 basis benefit because of the lower slippages and 7 due to lower day count. But there is element of IT refund as well as some recoveries which is indicated in that paragraph. How much-
So-
If you can quantify that because there would be some pressure on yields as well.
I think on this side, right, there was some IT refund. I would not say that was material to the overall movement. It helped by a tiny bit, but nothing specific to call out there. In terms of, you know, overall outlook on the margin, you know, we've seen sort of strong improvement in our cost of funds continuing for the last two quarters. With this rate increase we have taken, we think, you know, cost of funds may have bottomed, right? Some of the seasonal factors which I spoke about, which were there in this quarter, won't be there for the next quarter or two, right? I think to that extent, there will be an impact on margins.
Got it. Perfect. Yeah. Thanks and all the best. Yeah.
Thanks, Kunal. Thank you.
Thank you. Your next question comes from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Hello. Yeah. Hi. Good evening. Congratulations on strong performance.
Thank you.
I have two questions. One is on the technology. Like, we have spent a good time on technological prowess that the bank is building, including the investments in GenAI, agentic AI. How do you see this translating into business volumes, and what kind of cost ratios will you now target over the next 2, 3 years as the bank transitions to universal bank?
Yeah. Nitin, second question.
Yeah.
Yeah.
No, second is more on similar lines, like because as an SFB, the range on cost ratios is generally like very tight and it's very narrow across the banks. Most SFBs are like operating around 80s%-30s%. But as a universal bank, the range is very vast, very wide. There are banks below 40% also. Where, like AU, which generally has been best in class on many parameters as an SFB, how will you want to position yourself on cost ratio now, as you like undertake this transformation?
No, Nitin. Let me answer first, you know. I think why we have given you the more elaborate, I'd say, description from in our
Presentation and of course, by our CFO, Gaurav. Because we are investing lot in our tech, you know. You know about that we have around 7-8 asset classes. We need to build our liability franchise. We want to build it pan-India, you know. There is lot of challenge in terms of language, in terms of making everybody understand product, process, you know. Making everybody align with one goal, you know. When you want to become a pan-India franchise, something need to be stitching everybody, right? We believe at AU that tech is that medium that, you know, that can connect, you know, all our 60,000 people with all the diversity on the ground, you know. Be it product, be it distribution channel, you know, the processes, the policy, you know.
There is lot of friction honestly, you know. You might wanna do lot many things from top, but you can't do it on the ground because it's very highly, I would say, friction at every level. I think now, tech is actually solving it, you know. Much has been solved over the years, but I think now AI is really helping us lot into that. We are not saying that AI is only will be helping us in back-end automation or back-end processes or back-end policies, you know, all those things. We want to take it to the front end, you know.
I'm so happy to say to you all that we have launched our first AI-led LOS in gold loans, and we actually have, you know, given 2, 3 loans on Saturday, today also, which is a 5, 10-minute journey frictionless, right? We believe that AI will allow us to connect with people internally and externally seamlessly their own comfort language, you know. In my opinion, if there is an even 10th pass employee, you know, they can also be given job. With the help of AI tools in their hand, they can be as productive as anybody else, you know, on the ground. Because AI will be doing a lot more, you know, as the main, I would say, communicating with the customer, and the boy will be only doing the necessary things, you know.
We want to invest a lot on those things. I'm not able to imagine that what kind of cost reduction that AI will do us because it's a very early stage. You know, if you ask me, being in I would say retail physical-oriented franchise where the cost would always be high, I think AI will help us in two sense. One, our productivity will go up, our channel distribution can go up, our scale management will be lesser in terms of risk and all those things. Eventually the cost will get addressed, right? To get to some number is difficult, Nitin, in this call. Maybe down the line one year you will be able to figure out that, you know, how much it will help us.
There is a clear-cut advantage to the franchise when we do AI-led acquisition or AI-led assistance in so many cases, then I am seeing clear-cut differentiation in times to come. I don't want to say that AU will be the first AI-native bank, but we want to be in that category, you know. We'll put lot of focus, money, people to achieve that, you know. I'm sorry, you know, it's not able to build it around cost. Overall, the focus on cost is huge, if you ask me. You know, we have gone from 4.3% to 4.1% in this year itself. You know, I believe next year, you know, this current financial year we should be lower than 4%, you know. This will be done organically, right?
If you want to disrupt it, I think it has to be tech driven, you know. That we are on the course and I believe, you know, because once you get about the Universal and other banks, the scale is very different, you know. I can't compare myself to the level of 2.5% or 2% kind of, you know, the expense on the asset, you know. Rather I would say that the first benchmark should be the, "Can I do around 3.5?" You know. That too in 3-5 years, right? But I think, you know, it's so difficult to reduce your cost, you know, somehow.
I think the tech is able to give us that hope that if you start building it more on tech, you know, and allow people to work on tech, you know, this can be achievable, you know, faster than what we are projecting this call also. You want to add on, Gaurav, something?
No, I think you've captured it all right.
Yes. Yeah.
Yeah. Thank you, Sanjay, for such a detailed answer and very good clarity provided on it. I think one more question that I have is around asset quality. It's very heartening to see that the bank has delivered 1.8 ROE what it guided for FY 2027 right in the fourth quarter itself. But from here now, looking at how the asset quality is shaping up, this quarter was particularly very strong. Should we benchmark our estimates around credit cost versus this quarter number? Because if I look back, we used to like have much lower credit cost versus what we have seen in this year, and now we are approaching closer to that number in Q4 now. Should there be a-
Nitin. 2, 3 disclosures. I want to say I think Gaurav very well articulated that this is a seasonal quarter. Always quarter four remains very strong for in every sense. I would advise anybody that you should actually build this quarter credit cost as an overall cost for next year, you know. If you ask me, you should build it around 90 basis points or maybe in that range so that, you know, it allows franchise to have some kind of risk-taking capability, you know. We want to drive too tight in terms of credit cost estimation. In the field, in the market which we operate, it is not good for the organization, right?
Because we need to take risk in our market, in our business. I would say, you know, build it around 0.90. If we save something, it's all of us to share, you know?
Yeah.
I don't think that 1.8 this quarter ROA should be seen as the permanent ROA because there are external challenges which we all know about it. I think at AU within, we are building it as foundation where we can build a long-term, very solid franchise. You know, be it people, be it distribution, channels, geographies, products. You know, we are investing in every side of the business, you know. You've seen how we are building it our tech stack also. I can say you that AU will be very sustainable in their results, you know, because we are working on a lot of inputs, you know. I think next
This year is our 10th year of our working, and I already said to you maybe a couple of years back that it takes around 10 years to build a very strong foundation. There is a lot of learnings coming up, you know, from last maybe couple of years. We are taking every learning to really build AU into a very sustainable franchise. I'm very happy that the way the team is, you know, taking the ownership. The team is learning and building it up so beautifully, you know. I believe that, you know, you people should not judge us from our this quarter number. I think if you see the whole year number and last two year number, I think we remain very strong in our performances.
Right. Got it, Sanjay. Thank you so much. I wish you all the best.
Yeah. Thank you.
Thanks. Thanks, Nitin.
Thank you. Your next question comes from the line of Jayant Kharote from Axis Capital. Please go ahead.
Thank you for the opportunity. First of all, congratulations on great set of numbers. First thing was on the credit cost. We also have RBI ECL norms coming through as we speak. Any impact on steady-state credit cost for us given the entire book experience in recent years since we are growing that book again. In regards to the 90 basis points guidance, how should that look with the new ECL guidelines?
ECL guideline has just come in, right? We haven't-
It's exactly the same. It's exactly the same as draft.
I'm so sorry to give any guidance around it. You know, you have to give us some time. I've been told that we as an SFB is not covered under that ECL program. Is it right?
Yeah, I know. I was talking after you transition to a universal bank.
Let us get into that. I don't think, you know. Of course, Vivek is on the call. You know, Vivek, can you comment on that?
No, you know, Jayant, it's too early to comment on it. Let us understand that, right? You need to understand just one underlying factor that 90% is our retail secured asset plus, I would say, secured commercial banking book. It has a very different connotation to it. Any guideline or credit cost calculation would eventually work on the loss given default and, you know, probability of default, right? For us, loss given default in retail asset has always been low. I would just want to give that guidance. MFI, 100% of my incremental book is covered in CGFMU and 92%, as we speak, close to 92% book is covered.
You know, to that extent, right, any guideline or even the draft guideline had this provision that any government coverage would continue to be benefited out of it, right?
Thank you. Second question was regards to the geographical liability expansion, so to say. Next two years as we transition to a universal bank, I do understand on the asset side you have some focus areas in the south. If you can help us understand what would be your strategy on liability geographically. I do see some higher contribution from markets like UP, Karnataka. So why would their asset side not match up equally? I mean, just trying to understand the strategy only.
No. I think if you ask me the most important strategy which we work on daily basis or maybe in execution or any meeting or any review is around liability franchise. I think you would have seen that you know at this level also without having a right to win in those markets you know we are able to grow our liability franchise this year too by 23%, right? If you ask me you know we have all the facets there. You know it's retail bank which is around 60% of overall deposit franchise. We have a government business and the property bank. We have a co-commercial-led deposits. We have a FIG. We have a CDs. You know then a treasury-led deposits you know. All our...
If you ask me internally, we know that all are building up very nicely and the focus remain to build all four, five facets for the liability franchise so that, you know, we don't miss anything, right? In retail franchise also there is sub-sector like NR, there is TASC, you know, there is special markets, you know. We are building all product line, all channels, you know. Nowadays we are also focusing to cross-sell more as the franchise becoming more mature. You know, as of now, our liability franchise is not talking to the asset franchise largely. We want that to happen from this year onwards, so that, when we acquire a liability customer, it's not only a one transitional ride, it is more relationship ride. We want to become a pan-India franchise.
We want to open around 80-100 branches every year. We want to build a brand around it. Once we become universal, you know, then the whole, I would say, the value of franchise will go up. You know, the people will understand us more and more. Our visibility will move more and more. I think this year or maybe the next year, we'll have a double down approach where we want to build it, you know, more faster, more granular, you know, more impactful, you know. I can assure everybody here that we became bank to build a liability franchise, right? We know that we have a strength in our assets, you know.
Our core expertise, our core leadership, our core acceptance of us as individuals is around our liability franchise, you know. You will see us more and more visible in times to come pan-India, you know. I'm sure that, you know, being so successful on SFB platform, you know, if you're on a better platform, you know, our performance will be far better.
I'm safe to assume, sir, since you're building this franchise, we shouldn't be building the rate cut on the SA and TD side, at least in the near term.
Sorry.
Rate cut on the pricing of deposits. Since we are in the build-out phase, we should assume that we are comfortable here or is there any more opportunities on the SA and TD cuts that you see in the next 2, 3 quarters?
I can't tell you any guidance around it. As I already commented, in my earlier answer that, liability franchise at our level, at our franchise is a daily business, you know. We have to take the cognizance of market, of reality on a day-to-day basis. We have ALCO every month, right? There we take decision that how much we can go up, how much we can go down, you know, which sector we want to build, you know, which, how much we want to build it, you know. It's very operational, in my opinion. If you see the overall result this year too, you know, our cost of money has gone down by 32 basis points. Our CASA is around 29, 28, you know. Our retail and stable money is around 70%. Our LCR is around 118%, you know.
We remain so well in all metrics, right? Idea is to not to have one side or two side, to remain very holistic in our liability build-up.
Definitely, sir. Congrats once again on a great set of numbers and all the best.
Thank you. Thanks, Jayant.
Thank you. The next question comes from the line of Pritesh Bumb from DAM Capital Advisors. Please go ahead.
Hi. Good evening, team. Congrats on a great set of numbers. A few questions. One is on the asset quality side. As we have now come out from the asset quality cycle, how are we looking to strengthen the residual asset quality metrics like PCR, contingency provisions and ACL, as we go along?
Pritesh, I think, you know, if you look at our Q4 numbers, it will tell you the exact story. We've always been very, very strong on retail secured assets. Our commercial assets have been range-bound. Large part of that was coming from our unsecured piece, which was credit card and MFI. Now both businesses are settling down, right? You know, I would say obviously there was a seasonality impact. Overall, things look very different, right, from the days where these two portfolios had a bit of a stretch, right? PCR is not a defined number. It goes by the provisioning policy. There is no change in the provisioning policy, right?
The ECL guideline as it would come and we need to follow from first, you know, April 2027. Obviously, some of it, you know, will have a impact on stage one, stage two, but then your accelerated provisioning at stage three might get released. So that working is yet to be done, right? I'm saying that, you know, the precise, what are the final guideline, the underlying, that's very difficult to comment at this point in time. We need to go through it. We need to put it in our model, and we need to perfect our model first, right? Then only are we able to comment on it.
To add on to Vivek, you know, we have the provision policy, but at every quarter, you know, the risk committee meets and assess any, you know, more provision they require. This time also, if you really see our PCR, you know, which if you take the credit guarantee book out of it, you know, then we are around 70%, right? I believe you should see us there only, and I can assure everybody on the call that our focus always remain to secure any kind of probable loss through this PCR. That is there, you know. What was your other number?
The PCR.
The PCR.
Oh, yeah, PCR. Yeah.
Okay.
The second question was, Sanjay , I just wanted to understand the philosophy for the approach on home loans from here. It's been mostly flat for some time now. Will we focus on asset duration than NIMs in the next few years? Anything on that?
Sorry, home loans.
Home loans.
Home loan, you know, honestly, we are doing more affordable, right? there
I would say, again, I think last call also or a call before, I highlighted that that market has become too competitive and every new NBFC or HFC is coming and building their book there only. I don't think that now there is a risk towards less there, right? We are not going irrationally, and we don't want to just do it to build up our growth there, you know, because we have not much to on table to really grow. Let's not look to one data point, you know, because we actually said that we want to grow around 2 x or maybe 2.25x or 2.5x to the nominal GDP and which we really delivered, right? It will be always like this where, you know, some book will be growing, some book won't be. You know?
Overall, you know, we know that we are very diversified ourselves in asset classes, you know. We want to play a risk reward game every year. Whenever we feel that it is better to grow that with this book, we want to double down there. We feel that this is not the right time to push this book, we don't want to do that, right? I think you have to see us that overall our growth is protected, which we are promising, right? We play around, wherever the risk reward is there.
Sure. That was clear. The last question,
Sorry to interrupt, Pritesh.
Yeah.
May we request you return to the queue for follow-up questions, please?
Sure.
Thank you.
Thanks. Thanks.
Your next question comes from the line of Param Subramanian from Investec. Please go ahead.
Hi. Good evening. Thanks for taking my question, and congrats on a great quarter. Firstly, I just wanted to understand again the, how we are, how we should think about, margins going into next year. So I heard you call out that, you know, there is a day count benefit this quarter and reversals as well, benefit of lower reversals. Benefit of lower reversals should stay, right? Because slippages are, say, moderating year-over-year. Basically how to think about that going ahead, yeah.
I think on this specific thing margins right I'll repeat what I said earlier right? On cost of funds, I think we've said that you know this quarter cost of funds may have bottomed out with the rate increases we have taken right? On your point around the seasonality in Q4. That six basis points for lower slippages that are two elements. One is your lower gross slippages so that's a quarter-on-quarter improvement from Q3 to Q4. Second is your higher NPA reversals right? Within that number. Now to the extent that you know Q4 is strong seasonally and Q1 is weaker you won't see this benefit in the next quarter.
Okay. Okay.
Yeah.
Basically these one-offs will not be there and cost of funds have more or less bottomed out and should increase from there.
Yeah. Yeah.
Yeah. Your asset yield will reflect whatever the asset mix is, right? That line is a bit difficult to call out. It depends on what is the mix of growth within the asset verticals, right? Where your unsecured, even with the recovery, will probably grow at a pace slower than the rest of the book, right? On a net-net basis, you may have some asset mix related pressure on yield.
Got it. Thanks, Gaurav. Secondly on fees, right? Generally, in fourth quarter there is a sharper seasonal uptick. I think it's in the loan assets and in the general banking fees that you call out in your slide. Is there something that is not there this time that was generally there?
No. I think there's nothing specific to-
Okay.
Specific to call out there on that one.
Okay. This is normal, is it? Okay.
Yeah. Yeah.
Lastly, if you could just call out, you know, your provision coverage is up. I think last call you had talked about something about how you know, provide for CGFMU, which is that, you know, you assume the recoveries will come through on the covered portfolio. But this quarter we are seeing PCR has gone up again. Has anything changed there or, you know, we are completely status quo and this is, you know, the PCR is stable?
Param, as Vivek mentioned, right, PCR is a function of accounting policy, right?
Okay.
Where is your NPA coming from, right? Which asset class and what is the provisioning policy for that particular asset class determines what your PCR is. It's an outcome rather than an input, if you will.
Perfect. Thank you so much. Congrats on the great quarter again. Thank you.
Thanks, Param.
Thank you. Your next question comes from the line of Akshay Jain from Autonomous. Please go ahead.
Thank you, sir. Thank you for the opportunity. I have one question on loan mix in the southern geography. How can we, you know, look at incremental growth coming from southern geography and what proportion of your total AUM should come from southern geography, say, next three to five years? Which segment-
You know, your voice is little muffled. I think your voice is not coming very clear to us. If you could just speak clearly or can you
Is it better now?
A bit better. Yeah.
Yeah. my question was, you know, how should we look at growth, AUM growth from the southern geography? You know, what proportion of your incremental growth should come from south in, say, 3-5 years, and which segments will be driving this growth? Second, related question is that in 2 years since the merger. The performance of the non-MFI segments often, you know, gets clouded due to the MFI weakness. How is the early-stage delinquency trends in the non-MFI segment in the southern geographies now that we are, you know, 2 years of growth data in there?
You know, I would say that it's too operational now. You know, we have become one bank and it's not about southern market or north market, you know. Certain branches perform, certain branches doesn't perform. That is why, you know, our overall growth estimation, which we have linked to our nominal GDP, which is makes you 2 x or 2.25x or whatever, right, in the range. We want to be on that guidance. In that some product will work, some won't, you know. Some geographies will work, some geographies won't, you know. That's the reality of the situation.
I think the way we have built ourselves overall, you know, as a franchise, where we have built, I think 10, 12 product line in asset classes around, you know, 2,500 touchpoints, you know. We want to grow our distribution, we want to grow our team, we want to grow more and more into the market, right? There would be also a change in our customer segment once we want to cross-sell more to our existing base, you know. I think it's not relevant because, you want to judge our overall growth rather than some market growth, you know. I think I would say that from here onwards, we really want to focus on overall growth metrics, you know.
Overall NIM, overall other income, you know, the credit cost, so that we remain solid in terms of overall performance, you know. Because if we start picking one market, one product, one things, you know, at the call level, then I think the overall, I would say the fragrance of franchise get lost, you know. As I already communicated that, you know, I'm so happy that the way we are building ourselves, the next big thing in the banking franchise, where we want to become a pan-India franchise with lot of product offering, you know, in liability and asset, you know. With the physical distribution and with the tech-led capabilities, you know, with one data matrices which overall looks very good, you know. I think that's our approach and I think.
There is no perfect world, you know, honestly, you know? We have learned that in last 9 years that there won't be any perfect day. You have to go every day and build yourself in this whole imperfection. The way we have understood the market that in the end, it all becomes, you know, good. I would rather say that, you know, this year remains one of the, again, more of a learning year for us and let's see how the next year goes into it. I think after 10 years, you know, I would say that we've become more predictable in every sense.
Understood, sir. Just on the ROA target of 1.8%. From what I can get from the call is that, you know, your margins might stay flat to maybe slightly down because of mix shift. Credit costs, you are asking us to build around 90 basis points versus 60 basis points in the current quarter. Should we assume that, you know, a large portion of the 1.8% ROA should come from costs?
Akshay, I think Gaurav said to you that we want to work on our cost. We really want to work on our credit cost, you know. One is your own model where you, we want to, you know, say that projects us 0.90%, but our performance should be better than that. It's an outcome, right? Again, difficult to comment in this kind of time where, you know, last year when we were there, it was so difficult environment, but in the end, we have performed well. I believe that once the external environment becomes, I would say, more predictable or that volatility goes out, I think internally India looks very bright. Internally India looks very sharp and we believe that we are building this bank for India, you know, and we will perform.
Understood, sir. Thank you. Thank you for the answers.
Thank you. Thanks, Akshay.
Your next question comes from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi team. Good evening. First question is on deposits. There is good progress on CASA deposits, especially on CAR in FY 2026. The question is on cost of funds. I understand that there will be intermittent pushes and pulls from the rate cycle and competition, but more through the cycle, do you have an internal target of where this cost of funds should be, let's say, relative to the banks with the lowest cost of funds, after you get the universal bank license? That is one. Along with that, if you can also share the amount of retail deposits on the balance sheet as on March 2026.
I think the long-term target or the long term, I would say, the way we are pushing internally that our cost of money should be around the repo rate prevalent at that time. If you ask me, at this time the repo rates are 5.25% and my cost remain around 6.75%, you know. If you see the midsize banks, they are around 6.25% and old private banks are around 5.25%, right? Ideally, once we become very mature in our universal banking avatar, my cost should be around the repo rate at that time. That's a long-term dream and target, you know, but can't comment that when we'll we reach there.
Because you're asking me so that I'm giving you the view of us internally. You know, second question you have around is? Retail or-
Retail.
Retail TD. Sorry, what's your second question?
Amount of retail term deposits, sir, as on March?
Ashlesh, I think we've covered that in our commentary, right? In terms of how we are looking at the deposits with branch. You know, maybe I'll just add a bit more color around this. We have created, you know, four sort of focused segments for our deposits business. One of them is branch banking, which is primarily targeting retail deposits. Branch banking's contribution to the overall deposit is about 60%, right? That's one. The other segments are wholesale, government and FIG, right.
Second, data point we have disclosed is on the stability of our deposit base, where when we, when you look at, CASA, retail TD and your non-callable wholesale, that ratio we have disclosed is 79%, which is, you know, sort of stable versus, the last year, right? So those are the two data points we've disclosed in our, presentation.
Okay, sir. Sir, secondly on the growth outlook, given the uncertainty on the macro, when do you expect to take any action on, let's say, curtailing risk or pulling back credit? Yeah. Do you intend to do that?
Yeah. It will happen automatically. It will remain because we want to remain very risk-aware and wherever we'll find the indicators, which as of now is not there. We believe that and we already have said in our opening remarks that wherever we felt that this market, this product, this customer base, you know, might get affected because of this challenge, you know. We don't want to onboard them. It will happen automatically because we have built our credit underwriting model around this.
Understood, sir. Thank you.
Yep.
Thank you. Ladies and gentlemen, we will take that as our last question for today. I now hand the conference over to Mr. Prince Tiwari for closing comments.
Thank you, Sagar, and thank you everyone for joining the call and your questions and for all your support. In case you have any further questions, kindly do reach out to the IR team. Good evening and good night.
Yeah. Thank you so much, you know. Have a good time.
Thank you. On behalf of AU Small Finance Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.